Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: FiveFour who wrote (279080)	3/7/2004 2:03:12 AM
From: mishedlo	Read Replies (2) \| Respond to of 436258

No chance of a rate hike this year. I hope you are right, but I can't help wondering about the risk that the FED may be pushed into a situation where they are unable to control the rates. The problem is an increasing risk that inflation may kick in. Commodity, energy, material prices are all up and may soon start showing up in CPI, PPI, etc. If inflation spikes, what will Greenspan do if faced with the conflicting goals of tighten money to control inflation and loosen money supply and keep rates low to stimulate investment, stimulate jobs, and stimulate liquidity? I would think that he opts for liquidity at the expense of inflation. The problem could occur because international investors hold such a significant portion of US debt. I can foresee a scenario where further interest rate pressure occurs as investors require higher dollar returns to compensate them for an inflating, higher risk, US economic environment. If we were sitting in Europe, would we think that a 30 year US no credit risk rate at 4.8% adequately reflects the long term inherent economic, political, and currency risk? I am not sure it does. Liquid, international capital flows so easily today and the declining dollar will add more pressure to the required rate of return for international holders. I can easily imagine a scenario that Greenspan does a poor job of balancing the need to keep low interest rates (more liquidity) with the conflicting priority of fighting a growing inflation rate (less liquidity). He could easily get behind the curve. "No chance of a rate hike this year" may be optimistic. The economic environment, sentiment, perceptions, and priorities can change in 9 months. Greenspan may have lost control over the situation. This is way too easy. #1) Greenspan is TRYING to cause inflation and bring the US# down #2) He is bitching about Japan supporting the US$ #3) Japan told greenspan to fuck off #4) Europe is threatening to intervene to support the US$ #5) Japan is pissed at Europe for #4 #6) Given that everyone wants the US$ high but the US it seems highly unlikely people are going to stop buying the US$ #7) Jobs jobs jobs - How many frigging times does greenspan have to say jobs before anyone understands he means it #8) The US wants (or so it thinks) China to float the Renmimbi. More evidence that the US wants to trash the US$ #9) China has said Fuck Off - we arent doing it - so we have 3 players that want to keep the US$ high and one - the US that wants to kill it #10) Because of Jobs and spending that is not sustainable the US is about to head into a recession. Everyone was concerned about the "double dip" a few years back. Virtually NO ONE is talking about a recession now. Recession 2005 Book it Dyno! #11) We aren't hiking in a recession. We are CUTTING. The next move is likely DOWN. #12)Who gives a rat's ass about commodities when labor costs are 3/4 the total cost of making a product. Outsourcing jobs to China and India have enabled the PPI to go up but virtually no increases in priced of finished goods. #13) China growth is unsustainable. It is acting to slow the boom over there. These things take time to work thru but this will slow some of the pressure on commodities except perhaps for oil #14) An oil shock can easily cause a recession. Oil has unique geopolitical problems to say the least. Venezuela is on the verge of serious instability and what happens if there is an overthrow in Saudi Arabia or even repeated terrorist actions agaisnt Saudi pipelines? High oil seems inflationary but it is not. It acts as a direct tax on anything and everything and takes money from buying goods and services. Spiking oil prices will slow things down considerabley. #15) all of which lead the rational human being to say NO RATE HIKE THIS YEAR. I have 75% chance the next move when it comes is LOWER. Show me jobs and I will change my tune but that is what it will take. Mish